Barclays (LSE: BARC) share price has been a standout FTSE 100 performer during 2025, with a 63% rise year‑to‑date. However, it could still go a lot higher based on its true value.
This is because a share’s price is whatever the market will pay at any time. But value reflects the true worth of the underlying business’s fundamentals.
So, how big is this gap for Barclays?
Comparative valuations
On the key price-to-sales ratio, Barclays’ 2.3 is bottom of its peer group, which averages 3.3. The banks comprise Standard Chartered at 2.5, Lloyds at 3.1, NatWest at 3.3, and HSBC at 4.2.
So, it looks a bargain on this basis.
The same is true of its 9.8 price-to-earnings ratio against the 12.9 average of these competitors. And it is also true of its price-to-book ratio of just 0.8 compared to a 1.2 peer average.
The key test
These comparative ratios provide a broad context for any share price, in my view. But if a sector is over- or undervalued the valuations of individual stocks can be skewed.
This is why I prefer the discounted cash flow model. It provides a standalone valuation based on cash flow forecasts for the underlying business.
In Barclays’ case, it shows the shares are a whopping 45% undervalued at their current £4.34 price.
Therefore, their ‘fair value’ is £7.89.
Crucial earnings growth outlook
Growth in earnings is the key long-term driver of any firm’s stock price.
A notable risk to Barclays is slowing economic growth in its major markets of the UK and the US. Declining interest rates in both could also do the same.
That said, the consensus forecast of analysts is that its earnings will grow by an average of 8% a year to end-2027.
How’s the core business look?
These strong forecasts look well-supported to me by excellent results in recent months.
Its Q3 numbers released on 30 September showed resilient profitability with a return on equity of 10.6%. Like return on equity, ROTE is calculated by dividing the company’s net income by average shareholders’ equity. But ROTE excludes intangible elements such as goodwill.
Even better for investors was the bank raising its 2025 ROTE guidance to “more than 11%”, from “around 11%” previously. For 2026, it targets a figure of 12%+. Positively as well, it announced a £500m buyback, which would tend to support share price gains.
Its full-year 2024 numbers published on 31 December saw ROTE rise from 11.8% to 12.5%. Earnings per share soared 29% from 28p to 36p.
My investment view
Despite being at a bargain-basement price, Barclays is not for me right now for two reasons.
First, I already own two banking stocks – HSBC and NatWest. So adding another would unbalance the risk-reward weighting of my portfolio.
Second, I prefer stocks with a higher dividend yield than the 2% Barclays currently offers. This is because I want to increasingly live off dividend income as I move into full retirement mode.
Having said that, for investors at an earlier stage of their investment cycle (I am over 50), I think the stock well worth considering. And that applies to those without these same portfolio balance issues I have.
For me, several other highly undervalued and high-yielding stocks have caught my attention recently.
